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“We are not freezing our budget. We are not. We can’t,” Ms. Stintz said in an interview on Thursday, adding that the TTC is still considering what an appropriate increase in its subsidy from the city would be, but wants to limit a fare increase to the planned 5 cents. “We are at a point where we cannot continue to serve record ridership with a flat contribution from the city,” she said.

City councillors are already considering raising property taxes by 1.6 per cent over three years to finance transit – in this case, a Scarborough subway extension in place of a planned light rail line.

The proposed tax hike is part of a report from the city manager released on Thursday that sets the stage for yet another heated transit debate at council. For Mayor Rob Ford, who has always pushed for subways over light rail, the Scarborough extension is a personal victory – one cemented last month when the federal government agreed to contribute $660-million. He is expected to make the report the first order of business at next week’s council meeting.

The province is contributing $1.48-billion to fund the subway, less than the $1.8-billion the city had hoped for when it voted for the subway plan this summer.

To get the subway, the report finds taxes would have to go up higher and faster than the 0.25-per-cent annual increase over four years that Mr. Ford has set out as his line in the sand. Early estimates in the report put Toronto’s initial tab at $910-million. That number does not include the “sunk costs” associated with the original light rail plan, estimated at $85-million, or what it describes as “initial work,” such as an environmental assessment.

The report also raises a red flag about the domino effect the subway extension could have on other parts of the system, noting that increased ridership will likely force the cash-strapped transit agency to act sooner to address overcrowding on the Yonge line – including construction of a downtown relief line.

TTC CEO Andy Byford said even without the subway extension, the Yonge line will be “saturated” by 2031. He said detailed planning on connecting the Bloor-Danforth line to Union Station should start now. “We need to be planning for this line, we need to be doing the detailed work and getting funding, because I’m quite convinced this needs to happen,” he said.

To pay the city’s share of the proposed Scarborough extension of the Bloor line to Sheppard Avenue, residential taxes will have to rise by 0.5 per cent in 2014 and 2015 and by 0.6 per cent in 2016, the report finds. The city also will need to increase development fees to raise an additional $165-million.

Estimates on the city’s share of the project and tax increase are similar to those provided to council in July, when it gave conditional support for the subway plan.

The report makes no recommendation on whether the city should build a light rail or a subway. As with an earlier TTC report, it finds that the best subway route would follow McCowan Avenue, rather than the existing transit corridor. It gives council two options – endorse a subway extension to Sheppard Avenue along the McCowan corridor, or confirm support for light rail to replace the aging Scarborough Rapid Transit line.